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Last updated: November 16, 2006 8:25 pm

Banks aid buy-out of Clear Channel

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Two buy-out groups and five Wall Street banks on Thursday combined to buy Clear Channel Communications for $18.7bn, taking the largest US radio station chain private after a short but dramatic auction.

The deal, led by Bain Capital and Thomas H. Lee Partners, marks the latest and biggest effort by cash-rich private equity firms to refashion chunks of the traditional media industry challenged by the digital age.

The two firms will control a large outdoor advertising business and 1,200 radio stations accumulated in 30 years of deals by members of the Mays family, who founded Clear Channel in 1972 and will continue to run the company under its new owners.

JCDecaux, the French outdoor advertising company, said it was interested in buying Clear Channel Outdoor and the buyers “are aware of our interest”. Analysts have speculated that any buyer of the radio group would sell the outdoor advertising business to help finance the transaction.

The offer by T.H. Lee and Bain, already joint owners of Warner Music, surprisingly edged out a competing bid by Providence Equity Partners, Blackstone and Kohlberg Kravis Roberts, which had been discussing a deal for months before the company was put up for sale in October.

The chances of Bain and T.H. Lee emerging with the winning bid appeared to be further reduced this week when Texas Pacific Group, a third member of their consortium, pulled out.

But in a sign of how some of the largest banks are aching to participate in the private equity boom, Morgan Stanley, Citigroup, Credit Suisse, Deutsche Bank and Royal Bank of Scotland agreed to contribute about a third of the equity cheque, estimated at more than $5bn, as well as to finance the debt package of more than $21bn.

The deal could attract regulatory scrutiny, given the rising presence of private equity groups in the media industry. The Federal Communications Commission is reviewing whether to loosen media ownership limits.

The Clear Channel auction was controversial because of its short time-frame, which critics saw as preventing the board from attracting the highest offer, and the large pay-out that the Mays family will receive in the deal.

The Texas-based company responded by allowing the board to solicit higher offers until December 7. In addition, the Mays family agreed to reduce the incentives it was entitled to in a “change of control”.

Clear Channel shareholders will receive $37.60 per share, or $18.7bn, in the buy-out. This values the company at about 12 times next year’s estimated ebitda. The buyers will be taking on about $8bn of its debt.

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